Ros Altmann: If people find they are penalised for having a private pension, then more and more will not bother to save
Baroness Altmann is a former Pensions Minister who campaigns on behalf of the elderly, and sits in the House of Lords.
It is only right to properly protect state pensions in the middle of a cost of living crisis, especially after the past year’s real terms cut.
Criticism of the 10.1 per cent inflation increase for state pensions is disappointing, and calls from some quarters for the introduction of means-testing recipients are not the answer.
This would undermine private provision for retirement.
The Labour Government in the early 2000s extended pensioner means-testing significantly when it introduced pension credit.
Nowadays, this tops up the income of the poorest single pensioners to a few pounds a week below the level of the full flat rate state pension, and a lot less than double that for couples.
It is a valuable safety net to prevent elderly people falling into absolute destitution.
However, it is also important to recognise the fact that in the years after pension credit launched private pension saving plummeted.
Any plausible system of means-testing the state pension would have the same result.
If people find they are penalised for having a private pension, then more and more will not bother to save.
And when it comes to intergenerational fairness, means testing will harm younger workers, our country’s future state pensioners, more than anyone else.
It will be those in their 20s, 30s and 40s right now who lose out if it was brought in, as it will inevitably mean they miss out on the pensions that older generations receive.
They are the ones who will not benefit from any protection measures that end up being used for those nearing or already in retirement.
Today, millions of pensioners must survive on just the state pension – around £10,600 a year for newer retirees, or £8,100 plus second state pension or Serps top-ups for older people – which is the lowest in the developed world.
Last April, the state pension rose just 3.1 per cent despite earnings increasing by over 8 per cent.
The Government broke its triple lock state pension promise just as the inflation rate hit 9 per cent that month, and over last summer headed into double figures.
This April, critics suggest pensioners should not have been protected with a 10.1 per cent rise, especially as wages increased by less than this over the past year.
Such comments ignore the reality facing millions of pensioners in this country, who were short-changed and abandoned a year ago.
There are some well-off pensioners, who have plenty of income or other assets to supplement their state pension, but many are living on very low incomes.
Over £50billion a year is also spent on incentives for private pensions, which are supposed to supplement the minimal state payment – that is how our National Insurance welfare state has always been supposed to work.
However, today’s pensioners did not all have the chance to build private pensions when they were younger, so they are totally dependent on the state pension, to which they have often contributed via National Insurance for decades.
The state pension as it stands is hardly a king’s ransom, and pensioners cannot earn more in future to make up for low incomes now.
Older generations have been assured too, by successive Prime Ministers and opposition parties, that their small state pensions will be protected.
Without proper inflation protection, promises to look after pensioners are worthless.
This is a political choice about spending priorities. It is also a matter of morality and social responsibility.
Our welfare state is based on people working and contributing to society for most of their lives, with their contributions assuring them of a basic pension – not a fortune, but enough to enable them to afford essential bills in exchange, when they are too old to continue.
The Government’s energy price cap may make it easier to budget for heating bills, but does not cover rising food costs, insurance, over the counter pharmacy supplies and more.
Pensioners are still important members of our society and our welfare state contract requires them to be treated reasonably.
Having broken the solemn promise to protect state pensions last year, it was only right to ensure a proper rise this time.
Millions have little more than this minimum to live on and the Government’s decision to give them a 10.1 per cent rise was the right one.
